Securitization in China has largely been confined to auto loans, but Moody's Investors Service expects to see a broader range of deals in 2015,

"We expect to see more diversified asset classes and originators in 2015, such as equipment lease and consumer loan securitizations, sponsored by both existing and first-time issuers such as commercial banks, local branches of international bank, financial leasing companies and asset management companies," Jerome Cheng, Moody's senior vice president, said in a report published today.

On the auto loan side, volumes will continue to grow, helped both by the rise in auto lending and the strong credit performance of the deals. Moody’s said that the six auto ABS deals issued in the first three quarters of 2014 experienced a cumulative default rate of only 5 basis points seven months after close, while the 30-day plus delinquency ratio remained low at 20 basis points as of September 2014.

Securitization issuance has grown to RMB 213 billion ($34.5 billion) year-to-date from RMB 16 billion in 2013 on the back of market developing initiatives introduced by the Chinese government.

In September 2013, China’s State Council announced that it would allow securitized products to be traded on stock exchanges in an effort to boost the financial instrument’s liquidity and broaden the investor base.   

The State Council also strengthened regulatory control of the securitization market. There is a new registration system that will allow qualified issuers to register transactions prior to issuance, as opposed to the previous system where regulators approved transactions on a deal-by-deal basis.

But the rating agency said that  China’s securitization market is still clouded by the legal risks arising from the country’s  “lack of court precedent” from its “relatively young legal system.”  

Deals may also be exposed to operational risk as a result of inexperienced originators and the absence of an established back-up servicer market.

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